Some of the Sonics Arena and Steve Ballmer narratives are stupid

Steve Ballmer bought the Clippers, and as a result a lot of assumptions have been made about what this means about the Sonics Arena situation. Here is why some of them are stupid:

“With Ballmer gone, the Seattle deal is dead”

This has been perhaps the most prevailing narrative since word of the sale surfaced. This has been viewed as Ballmer, who has more knowledge than just about every person besides his then-investment-partners on the Seattle deal, bailing on an impossible task.

This could be true. This isn’t necessarily the easiest way to explain him buying the Clippers, though. First off, the Clippers weren’t available when he got into business with the Sonics Arena group. They weren’t even believed to be up for sale any time soon. They’ve got a pretty attractive thing going, with stars like Chris Paul and Blake Griffin, a lease at Staples Center among all of the L.A. Live attractions, and in the largest media market in the United States. For all intents and purposes, buying a team in Los Angeles is like buying a team in a completely different league.

That Chris Hansen remained with the Sonics Arena group is fairly telling that the remaining investors don’t think the Sonics Arena Proposal is dead. It’s worth considering that with the hundreds of millions of dollars of land that Hansen has purchased in Seattle that he may be relatively pot-committed. He’s invested a lot of time and resources into what he expected would be a profit in the long-term. His remaining could be more a reflection of his previous investment than his optimism of a deal being done in the future.

Regardless of the nobility of his reasoning, though, Hansen is sticking around in Seattle. He’s still got an MOU in place, and he’s got access to some high dollar investors.

 

“Steve Ballmer should move the Clippers to Seattle, because if teams cost $2 billion now, Seattle can’t afford it.”

There are very few cities in which an NBA owner can actually expect positive cash flow from their basketball team. I’ve been quite critical of Howard Schultz for even insinuating that the former Sonics’ cash flow problem was the catalyst for his selling the team. Sports franchises aren’t for-profit entities. They are collectors items. The money that goes into maintain them isn’t paid out in annual revenue, but in appreciated value.

Ballmer is smart to get into the NBA now, even in Los Angeles and at a $2 billion price tag, because he’ll be in before the next round of TV contracts that should be the largest proportionately in NBA history.

The notion that the $2 billion price tag is actually $1.35 billion more than the deal Seattle had in place with the Kings is false. The $650 million the Seattle group was willing to pay didn’t include the $300 million initial investment they’d make in a new arena, or the $200 million in bonds they’d repay over the 30 year lease in the new arena. It didn’t include the additional investment that Hansen would make to build the SoDo region up to the status of L.A. Live.

A state of the art arena and favorable setting already exist in Los Angeles. Even without investments in surrounding areas, the Seattle group figured to invest about $1.15 billion in their new team. Nobody sells their property but not their house. There may not be an itemized $500 million in this sale for the cost of Staples center, but an existing arena is far from a free arena in the eyes of the seller.

 

“The NBA hates Seattle”

This isn’t true and has never been true. The NBA is a utilitarian organization, but which only cares about the utility of its owners, and not its fans. That’s common. Businesses are frequently looking out for their best interests, and in Seattle the NBA has a willing partner. They’re able to walk into meetings about arenas in problem cities with a real threat. They have a real bargaining chip. If they let Seattle back into the league easily their threat is limited to what? Less than a decade long NBA drought?

From the time Seattle signed the MOU Seattle has been the place where a team landed if their home city faltered. The NBA has created terrible circumstances for the citizens of cities like Sacramento and Milwaukee. Those cities probably won’t be the last, and the NBA isn’t in the civic duty game. They’re in the “making NBA owners more wealthy game.” They’ve positioned themselves in a strong way against any city that attempts to play hard ball. When people say that Seattle is a chip, they’re right, for now.

 

“The NBA won’t expand, so Seattle has to get a team to relocate from another city.”

This is certainly the narrative with the most gray area. Adam Silver has said that expansion isn’t a consideration at this point, but doing so would weaken his position in cities where teams are asking for a new arena. If the NBA expands by two teams, it removes the threat of likely two of Virginia Beach, Kansas City, and Seattle. This allows cities to hedge their bets, playing the odds that their team is no longer prone to be the one victim that falls prey to three hungry cities. If the NBA was constantly hinting at expansion, they’d be much less likely to be able to extort public funds for arenas in other cities.

 

“But the local ownership group is willing to contribute so much that the NBA is stupid for not accepting it. Not only that, but if the NBA won’t accept this, they won’t accept anything.”

On the surface, having a local ownership group that is willing to spend big on an arena seems like a position of power. Local government almost always has an adversarial relationship with large entities that require lots of public money without a huge return on the back-end in the way of taxpayer dollars that come from that entity’s employees. If the Seattle situation became the precedent, local governments in cities the NBA is negotiating with could point to the Sonics Arena project as a successful, mostly privately built arena project. That works in Seattle, but it may not be favorable to the existing NBA owners that may want hundreds of millions of dollars in public funding.